From: Mackay, Scott W [scott.w.mackay@lmco.com]
Sent: Wednesday, December 18, 2002 9:33 AM
To: 'SEC Rule Comments'
Subject: File No. 33-8150.wp
December 16, 2002
By Electronic Message
Mr. Jonathan G. Katz
Secretary
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: Comments to Proposed Rule: Implementation of Standards of
Professional Conduct for Attorneys (17 CFR Part 205)
File No. 33-8150.wp
Dear Mr. Katz:
Lockheed Martin Corporation opposes the application of proposed Part
205, which serves as an amendment to Title 17, Chapter II, of the Code of
Federal Regulations, to an issuer's employees who have law degrees and who
work in non-legal capacities.
As noted in the section-by-section discussion to proposed section 205.2, the
definition of "appearing and practicing" is sufficiently broad to include an
employee of an issuer who has a law degree but works outside the issuer's
legal department in a non-legal capacity. In that regard, the Commission
"requests comment on whether the definition should require, with respect to
in-house counsel, that the attorney actually provide legal services to the
issuer such that an attorney-client relationship exists, so as to exclude
attorneys employed by issuers in non-legal capacities, even if they prepare
portions of documents submitted to or filed with the Commission."
As proposed, the definition of "appearing and practicing" is overly broad
and is beyond the statutory authority provided to the Commission by Section
307 of the Sarbanes-Oxley Act of 2002. Section 307 authorizes rules
regulating the conduct of those attorneys appearing and practicing before
the Commission only in the representation of issuers. An employee of an
issuer who has a law degree and works for the issuer in a non-legal capacity
does not provide legal advice or other legal representation to an issuer and
does not perform his or her duties "in the representation of" an issuer.
Consequently, with respect to in-house counsel, the proposed definition of
"appearing and practicing" should be limited to those in-house counsel who
act "in the representation of the issuer," that is, by actually providing
legal services to the issuer such that an attorney-client relationship
exists.
Issuers employ many individuals with law degrees - including individuals who
are licensed or unlicensed to practice law and who are admitted or not
admitted to a state bar - to work in non-legal capacities in a variety of
functional areas outside the legal department, including, but not limited
to, human resources, tax, finance, engineering, and contracts. These
employees report to non-attorney supervisors in their respective functional
areas or to non-attorney supervisors in programs or other components of the
issuer's organization outside the legal department. These employees do not
report to the issuer's chief legal officer (CLO) nor do they have a
"supervisory attorney," within the meaning of that term as proposed in
section 205.4. Unlike in-house counsel working in an issuer's legal
department, an employee with law a degree working in a non-legal capacity
does not provide legal representation for or serve in the role as a legal
representative of the issuer. In recognition of that fact, courts have
regularly held that communications of an employee with a law degree acting
in a non-legal capacity with other employees of the entity are not protected
by the attorney-client privilege or work product doctrine. See, e.g.,
Georgia Pacific Corp. v. GAF Roofing Mfg. Corp., 1996 WL 29392 (S.D.N.Y.
1996)(attorney employed by a company who negotiated a contract's
environmental provisions did not do so as a lawyer and communications with
him about the negotiation were not privileged).
Section 307 of the Act, in directing the Commission to establish minimum
standards of professional conduct for attorneys, specifically limits the
scope of that authority to attorneys appearing and practicing before the
Commission "in the representation of issuers" . . . [emphasis added]. See
Proposed Section 205.1. Purpose and Scope. In its discussion of proposed
section 205.3(a), the Commission appears to recognize that Congress sought
to limit the scope of the implementing regulations to only those attorneys
representing an issuer, explaining that section 205.3(a) is "grounded in a
lawyer's well-established duty to act with reasonable competence and
diligence in representing a client . . ." Absent the required legal
representational relationship between an employee with a law degree working
in a non-legal capacity and his or her issuer employer, proposed Part 205 is
without statutory authority to include that employee within its scope.
Moreover, practical considerations dictate that the definitions of attorney
and "appearing and practicing" in proposed Part 205 should not include an
employee with a law degree working for an issuer in a non-legal capacity.
As proposed, Part 205 effectively makes an issuer's CLO responsible for the
conduct and training of an issuer's employees with law degrees who not only
do not work in a legal capacity, but who do not work for or report to the
CLO and whose law degrees are unknown to the CLO. Proposed section 205.4,
Responsibilities of Supervisory Attorneys, contemplates in section 205.4(b)
that an issuer's CLO, who is defined as a supervisory attorney in proposed
section 205.4(a), has the responsibility for ensuring that subordinate
attorneys comply with the rule. As noted in the section-by-section
discussion, proposed section 205.4(a) ". . . states that an issuers chief
legal officer is a supervisory attorney, and cannot avoid responsibility
under the rule by claiming a lack of knowledge of, or supervision over, the
actions of subordinate attorneys." The discussion explains that section
205.4 is based, in part, on Rule 5.1 of the ABA's Model Rules, which (1)
mandates that supervisory attorneys (including partners at law firms and
attorneys exercising similar management responsibilities at law firms) must
make reasonable efforts to ensure that attorneys at the firm confirm to the
Rules of Professional Conduct; and (2) provides that a supervisory attorney
may be held liable for violative conduct by another attorney which he or she
knowingly ratifies or which he or she fails to prevent when able to do so.
The CLO of an issuer, as a practical matter and analogous to a partner or
other attorney with management responsibilities in a law firm, should be
responsible under the proposed rule only for those attorneys over whom he or
she has the authority to exercise control. Typically, a CLO's control
extends over those attorneys in an issuer's legal department who report to
him or her, whether directly, indirectly, or functionally. The effect of
proposed Part 205 is to place the CLO of an issuer in the untenable position
of being responsible for employees who happen to have law degrees, but who
neither perform legal duties nor report to him or her within the legal
organization.
Similarly, the "up the ladder" reporting requirement contemplated by
proposed Part 205 suffers from the same infirmity insofar as it contemplates
that an employee with a law degree working for an issuer in a non-legal
capacity outside the legal department will report evidence of material
violations to the CLO. The reporting process outlined in proposed section
205.3 assumes that an issuer's attorneys work for the issuer's CLO and that
any such attorney's journey up the reporting ladder would necessarily be
through or ultimately to the CLO. As previously mentioned, employees of an
issuer with law degrees who work in non-legal capacities typically do not
report to another attorney nor do they have any reporting or organizational
relationship with the legal department or the CLO. Proposed Part 205
ignores these practical realities and difficulties by seeking to include
within its scope an issuer's employee with a law degree who works in a
non-legal capacity.
For the foregoing reasons, Lockheed Martin Corporation urges the Commission
to modify the proposed definition of "appearing and practicing" in proposed
section 205.2, to require, with respect to in-house counsel, that the
attorney actually provide legal services to the issuer such that an
attorney-client relationship exists, so as to exclude attorneys employed by
issuers in non-legal capacities.
Sincerely,
/s/
Scott W. MacKay
Associate General Counsel
Litigation & Compliance
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817